FAO could clear Chap. 11 next week

Upscale toy retailer inks $30mln financing deal

LuisaBeltran

WILMINGTON, Del. (CBS.MW) -- FAO Inc., which operates the FAO Schwarz and the Zany Brainy chains, said it has secured financing that could allow it to emerge from bankruptcy as early as Monday.

FAO expects to close a transaction with an investor group, led by Hancock Partners and Kayne Anderson Capital Advisors LP, which will buy $30 million in equity. The group also includes Saks Inc. as well as FAO Chairman Fred Kayne, CEO Kayne Andersen and Richard Kayne, a board member.

FAO will receive an additional $77 million credit line from Fleet, said attorney Mark Collins, of Richards, Layton and Finger. Collins and lawyer David Levene represented FAO in the bankruptcy.

At a bankruptcy court hearing Thursday, FAO also received an extension to use its cash collateral through April 24.

"You need a bank line as well as an equity line to consummate the reorganization plan," Collins said. "We are all hopeful this will close next week."

FAO said late Thursday that its plan of reorganization is expected to become effective next week at which point it would come out of bankruptcy reorganization. The toy retailer could emerge from Chapter 11 as soon as Monday, Collins said. Shares of FAO rose 6 cents Thursday to 20 cents.

"We are very excited that we are moving forward with emergence from Chapter 11," a spokeswoman said.

Earlier this week, FAO shares plunged more than 62 percent when the upscale toy retailer said unexpected complications could force it to liquidate. FAO said its investors had unexpectedly withdrawn but didn't provide details.

Bankruptcy Judge Lloyd King had earlier approved a reorganization plan that called for a $67 million revolving credit line from a consortium led by Fleet Retail Finance and a $10 million term loan from Back Bay Capital Financing. But the deal was contingent on the Kayne Anderson-led group buying the $30 million in stock.

FAO
FAOOQ
filed for Chapter 11 protection on Jan. 13, listing assets of $257 million and liabilities of $238 million.

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